Why Having Klout May Soon Matter To Financial Planners

Executive Summary

Identifying centers of influence has been useful and effective for businesses and advertisers as long as people of influence have wielded power in their communities. Historically, though, the challenge has been that it’s not always clear who is influential, especially in relatively narrow niches. However, as the use of social media continues to grow and evolve, quantifying influence, at least through social media channels, is becoming possible for the first time – and companies are jumping quickly to fill the void.

The current leader in this space is a company called Klout, which seeks to make itself the standard of measuring (online) influence. While thus far the company is relatively new and its impact is limited, it is growing fast. In fact, in some industries, an individual’s Klout score is already impacting their ability to get a job, or their opportunity to receive discounts and perks from advertisers. While the time hasn’t arrived yet, Klout may soon become relevant in the world of financial planning as well, for everything from increasing the visibility of an influential planner, to identifying centers of influence to contact in a target niche market. Which raises the question: do you have Klout?

(Editor’s Note: This article was originally published as a guest blog post for Wired Advisor, a platform that helps financial advisors build a powerful online presence, create compelling content, and implement a smart social media strategy. You can follow Wired Advisor on Twitter at @WiredAdvisor.)

What Is Klout?

If you’re not familiar with Klout, the basic principle is that the company looks at an individual’s online social media activity – primarily Twitter, Facebook, and Google+ (and to a lesser extent, LinkedIn and some other platforms) – with the goal of measuring how “influential” someone is. In the case of Klout, the “influence” term is used almost literally – Klout seeks to measure an individual’s ability to actually drive their audiences to action, such as following links, engaging, or (re-)sharing content.

Accordingly, Klout looks at three primary metrics to evaluate influence:

True Reach, an estimate of the number of people you influence, who may in some way actually act or engage with your content;

Amplification, a measure of how many people tend to response or spread the content you share; and

Network, a measure of how influential the people are in your True Reach (i.e., how influential is your network itself).

Ultimately, Klout merges these three factors – True Reach, Amplification, and Network – into a single “Klout score” that ranges from 1 to 100. Notably, though, scores are not evenly distributed. The average Klout score is about 20. A score of 50 is actually close to the 95th percentile. In addition, it becomes increasingly more difficult to increase a Klout score as it rises; thus, rising from 70 to 75 is far more difficult than going from 20 to 25. Given that the financial planning world itself is only “so” large, even the most active financial planners on Twitter typically have Klout scores that are “only” in the 50-60 range. A distribution of Klout scores, compiled as a part of an infographic by TheDegree360, is shown below.

Why Does Klout Matter

A recent article in Wired magazine provided a good explanation of why Klout may soon matter in the real world. The key is to view the issue from the perspective of a large company that delivers products or services to the marketplace. A challenge of such companies has always been that not only do products often succeed as happy customers share with others, but catastrophes can similarly spread by word of mouth. But of course, the reality is that not everyone’s good and bad review is the same – those are have larger networks and are more influential wield far more influence and can more significantly impact the business. Just ask any restaurant when the media food critic comes through.

The distinction, though, is that in the past, finding “influencers” was often quite difficult. Those in the media like food critics might have been visible, but beyond that it was often hard to perceive who was sharing what. But in a social media world – where the activity is visible and the web, and generally quite public, it can be quantified in a manner never before seen.

The end result has been an explosion in how social media relevance is starting to influence the world, from companies that triage complaints based on Klout scores (since those with more influence can more rapidly damage the company’s reputation by sharing complaints with their network), to advertisers who want to find out who’s influential in their product space, to businesses – especially in the marketing and social media space itself – who look to an individual’s Klout score to decide if that person is “influential enough” to merit a job offer.

Klout for Financial Planners

So why will Klout (or some similar service to it) likely matter for financial planners in the near future? There are several reasons why Klout is relevant.

Klout, on the other hand, analyzes the characteristics of the underlying followers/fans, and how often they engage with the user; as a result, it’s an effective tool to differentiate between those who have genuine social media engagement versus those who acquired followers/fans by other means. Notably, though, Klout also scores Facebook, Google+, and other social media scores into one composite score, so a lot of activity on one channel (generating a high score) isn’t necessarily indicative of engagement on multiple platforms.

Similarly, those who wish to expand a presence and engagement in a target market may also wish to monitor and try to increase their own Klout score, as a way to signal their relevance in their target market. Just as planners targeting a niche might follow those with high Klout scores, having a high Klout score in a niche can be a sign for others to follow you!

Accordingly, steps that engage online in a target niche and raise an individual’s profile in that niche can also support the Klout score, further reinforcing the individual’s influence to those seeking to engage. And if Klout continues to become more visible, at some point people may find you as a center of influence in your target niche specifically because of your Klout score – further supporting an inbound marketing approach to building a financial planning business.

Klout Caveats

Notwithstanding the aforementioned benefits of Klout, there are a few caveats to be aware of.

The first is that, overall, Klout has been viewed controversially in the social media world. In part, it’s simply because it assigns a “score” to a person’s online influence – inevitably leading to people who feel insulted that Klout isn’t giving them the recognition they believe they deserve. That being said, though, Klout is clearly limited to only measuring online, social media related influence; so while it holds itself out as “the standard of influence” the reality is that Klout likely only measures a subset of that. Already, though, alternative platforms like Kred have appeared that are trying to incorporate online and offline influence into a “better” score.

Another problem with Klout is that its scoring system itself – the algorithm used to determine who has social influence – is kept very secretive. On the one hand, Klout defends this secrecy as necessary; otherwise, users could potentially find ways to game the system and artificially boost their Klout scores. Google keeps much of the details of its search engine relevance algorithm a secret for the same reason. Nonetheless, many people have criticized Klout because the scores lack transparency, requiring you to take their score at its word, for better or for worse. While Klout’s rising popularity suggests that its scoring mechanism is at least doing a pretty reasonable job, the ambiguity about the details of its system contributes to the controversial nature of the platform.

In addition, there are some legitimate criticisms to some other parts of Klout’s system. For instance, in addition to scoring an individual’s social media influence, Klout also tries to tie the individual’s relevance to specific topic areas, with varying levels of success. While the system sometimes comes up with good topic labels, it also occasionally suggests people are “influential” in topics quite unrelated to their areas of expertise. Furthermore, some dispute Klout’s weightings of various social media platforms; for instance, Facebook activity appears to garner more weight than a seemingly comparable level of Twitter engagement.

The Bottom Line

Notwithstanding these concerns, though, the reality is that identifying people who are centers of influence in their community or niche has been important information for everyone from businesses to advertisers long before social media or the internet even existed. The only difference is that Klout uses quantifiable measures to evaluate influence and engagement – metrics that have become available due to the rise of the internet and various social media platforms. Whether Klout itself remains the leader in this space, or is taken over by a newer, better offering, remains to be seen. But in the end, as long as identifying and connecting with influencers remains relevant, so too will systems that seek to measure it.

Jeff,
At this point, it appears that Klout’s primary revenue model is via their “Perks” program, where they provide targeted deals from advertisers to Klout members with a certain minimum score (potentially also within only certain topics or geographic areas). Klout acts as the “barrier” between the advertisers and the members, screening advertisers and then providing offers to members through the Klout platform (rather than allowing the advertisers direct access).

Whether that remains the sole base of Klout’s revenue model, or whether they go other directions as well, remains to be seen – which I suppose makes them similar to almost every other growing social-media-related platform. 🙂 The model seems to be “deliver value first, figure out how to monetize it later” – hopefully in a manner that the latter doesn’t destroy the former.
– Michael

Starcount.com ranks the social media popularity of the most famous people from the top 11 social networks around the world. Users can see who’s the most popular per day, week or all time or you can place Starcount charts as bespoke widgets on your site(s). The platform is all about charting social popularity; it’s an easy way to discover what’s trending and what’s popular. Starcount basically pulls data from 11 global social networks and uses this to chart around 100,000 musicians, athletes, actors, djs, footballers etc.
Starcount are offering free Olympic chart widgets here:http://bit.ly/olympicchart

Cheers,
Peter
p.s. If you use a chart (or want any custom ones) it’d be great if you let me know: peter@starcount.com

Ken Hittel

Agreed that, for the reasons you stated, understanding & identifying online influencers will become increasingly important, but I’m afraid that Klout needs to do a lot more work on its algorithms before it really achieves credibility. (For instance, I’ve been identified as an “expert” on roomba, b/c I once mentioned it in a tweet.)
You might want to take a look a look at & sign up for the beta of littlebird, which takes an approach that I think will supersede Klout & Kred:http://getlittlebird.com/

Michael Kitces

Ken,
Personally I’ve always found Klout’s scoring algorithm to be remarkably accurate, although I will definitely grant their TOPIC selection is incredibly weak.

Perhaps it will get better with future development? We’ll see. To be fair, I think technically they’re still in “Beta” at this point!
– Michael

Hi Michael,
Good job of taking a complicated issue and applying it to how it may effect those of us in the financial industry. I hope that you are right and that consumers will soon use the tool to find the more influential planners who don’t have the megabuck marketing budgets. I’ve been using Klout for quite a while, and you are right, it’s hard to push your score higher once you have a decent one. As an aside, I did receive a nice perk recently. Sony sent me a set of wireless headphones. All they asked is that I mention them if I liked the product. Pretty cool. Keep up the good work.
Bob Rall, CFP®

I write about financial planning strategies and practice management ideas, and have created several businesses to help people implement them.